Business Law lecture notes
Lecture 1 – Course introduction and corporations – 12/04/2023
Dutch Law
Business law can be both public law of private/civil law
Company = UK
Corporation = US
Common law vs. civil law
Common law = by jury. Just pay your taxes, no more legal things
Civil law = by a judge. Managed by legal laws in law books.
PLC (UK) = NV in the Netherlands
- Shareholders residual claim
- Management
- Employees
- Board of directors
- Creditors priority claim. External, fixed claim
Business forms
1
,Jurisdictions (US)
- Federal government
- State governments
- Courts
o Federal courts on federal subject matters or interstate suits
o States everything else, including corporate law.
- Companies are free to incorporate in any state regardless of whether they are doing
business there or have any contact with this state.
- Most corporation are incorporated under the law of the state Delaware.
o Tiny state, fewer than one million inhabitants
o Very good corporate law
o Judges have backgrounds in finance.
o Keep their corporate laws very modern blockchain, virtual AGM, friendly
tax regime.
o DGCL = Delaware General Corporate Law
Sarbanes-Oxley Act = introduced after the Enron scandal (2002)
Jurisdictions (Europe)
- Member States have a national statutory company law, but are also subject to
European Law
1. Regulations = a binding legislative act. It must be applied in its entirety across the
EU.
o For example: regulation on market abuse
2. Directives = set out a goal that all EU countries must achieve. However, it is up to
the member states to devise their own laws on how to reach these goals.
o Minimum and maximum harmonization
o For example: encouraging long-term shareholder engagement.
3. Recommendations = not binding. A recommendation allows the institutions to
make their views known and to suggest a line of action without imposing any
legal obligation on those whom it is addressed.
2
, o For example: the quality of corporate governance reporting
- Less regulatory competition in Europe than in the US. Why?
o Reputational aspects
o Two conflicting doctrines in Europe:
1. Doctrine of incorporation (including the Netherlands) = location where
the company is formed. Established in accordance with the local laws.
2. Doctrine of real seat = location where the company operates the most.
o In some countries in Europe this is against law. They follow the real seat
doctrine. For example, the French law does not recognize a company that is
incorporated in the Netherlands when its real seat is in France.
Soft laws = corporate governance codes
- Yet another source of law
- Soft law with principles and best practices comply of explain principle.
- Almost all countries, some supra-national, some part of country.
- Recommendations, but do have legal effect.
- For example: create sustainable long-term value in your company.
Incorporation = the formation of the company
- Different documents need to be filed, including the Articles of Association,
mandatory capital, and registration in the Commercial Register
- Articles of Association = legal constitutional documents of the company, to be found
online.
o For example: composition of the board, type of board
- Procedures are usually similar although there are some differences, for example:
o Stringent vs. more flexible
o Liability for pre-incorporation company
o Minimum capital amount
Articles of Association
1. Mandatory rules. Cannot be modified by contract (articles of association). Usually
aimed at protection of weaker parties (for example creditors)
2. Default rules. Applicable in case Articles of Association or another contract does not
state otherwise:
o Article 2: 195 (1) DCC: Unless the articles of association provide otherwise, a
valid transfer of shares requires that the shareholder who wants to dispose of
one or more of its shares, firstly offers those shares to his co-shareholders in
proportion to the number of shares that is held by each of them at the
moment that such offer is made …
o Examples of Hansmann and Kraakman: France, default rule is one-tier board
structure.
Board of directors
- Dual/two-tier board = supervisory board and management board
- One-tier board (2 types) = non-executive board and executive board
3
, Right of first refusal = a fairly common clause in some business contracts that essentially
gives a party the first crack at making an offer in a particular transaction
Five characteristics of corporations
Basic legal characteristics
1. Legal personality
2. Limited liability
3. Transferability of shares
4. Delegated management under a board structure
5. Investor ownership
1) Legal personality
- Serve as a contracting party.
- A company is treated as if it is a legal person.
- Shareholders = owners of the shares, not the assets
- Entity shielding = liquidation protection and the priority rule
o Liquidation protection = capital of the company is within the shield and
therefore protected. Shareholders cannot claim the capital.
o Priority rule = creditors cannot claim their money but do have priority
- Perpetual life, but artificial creature of the law
- Hence, the corporate form is a set of features that enable a company to have an
autonomous life independent of its investors: separate patrimony (demarcation of a
pool of assets)
2) Limited liability
- Shareholders are only liable up to their committed investments owner shielding.
- Owner shielding = if the company cannot pay the debts to its creditors, then
creditors cannot get to the assets via the shareholders.
- Limited liability is a right that belongs to the shareholders rather than the company
itself.
- Advantages of limited liability:
1. Entrepreneurship
2. Investment (shares)
3. Portfolio diversification
Purpose of corporate law
1. Structure based on 5 features.
2. Controlling conflicts of interests (agency problems)
Asset partitioning
4
Lecture 1 – Course introduction and corporations – 12/04/2023
Dutch Law
Business law can be both public law of private/civil law
Company = UK
Corporation = US
Common law vs. civil law
Common law = by jury. Just pay your taxes, no more legal things
Civil law = by a judge. Managed by legal laws in law books.
PLC (UK) = NV in the Netherlands
- Shareholders residual claim
- Management
- Employees
- Board of directors
- Creditors priority claim. External, fixed claim
Business forms
1
,Jurisdictions (US)
- Federal government
- State governments
- Courts
o Federal courts on federal subject matters or interstate suits
o States everything else, including corporate law.
- Companies are free to incorporate in any state regardless of whether they are doing
business there or have any contact with this state.
- Most corporation are incorporated under the law of the state Delaware.
o Tiny state, fewer than one million inhabitants
o Very good corporate law
o Judges have backgrounds in finance.
o Keep their corporate laws very modern blockchain, virtual AGM, friendly
tax regime.
o DGCL = Delaware General Corporate Law
Sarbanes-Oxley Act = introduced after the Enron scandal (2002)
Jurisdictions (Europe)
- Member States have a national statutory company law, but are also subject to
European Law
1. Regulations = a binding legislative act. It must be applied in its entirety across the
EU.
o For example: regulation on market abuse
2. Directives = set out a goal that all EU countries must achieve. However, it is up to
the member states to devise their own laws on how to reach these goals.
o Minimum and maximum harmonization
o For example: encouraging long-term shareholder engagement.
3. Recommendations = not binding. A recommendation allows the institutions to
make their views known and to suggest a line of action without imposing any
legal obligation on those whom it is addressed.
2
, o For example: the quality of corporate governance reporting
- Less regulatory competition in Europe than in the US. Why?
o Reputational aspects
o Two conflicting doctrines in Europe:
1. Doctrine of incorporation (including the Netherlands) = location where
the company is formed. Established in accordance with the local laws.
2. Doctrine of real seat = location where the company operates the most.
o In some countries in Europe this is against law. They follow the real seat
doctrine. For example, the French law does not recognize a company that is
incorporated in the Netherlands when its real seat is in France.
Soft laws = corporate governance codes
- Yet another source of law
- Soft law with principles and best practices comply of explain principle.
- Almost all countries, some supra-national, some part of country.
- Recommendations, but do have legal effect.
- For example: create sustainable long-term value in your company.
Incorporation = the formation of the company
- Different documents need to be filed, including the Articles of Association,
mandatory capital, and registration in the Commercial Register
- Articles of Association = legal constitutional documents of the company, to be found
online.
o For example: composition of the board, type of board
- Procedures are usually similar although there are some differences, for example:
o Stringent vs. more flexible
o Liability for pre-incorporation company
o Minimum capital amount
Articles of Association
1. Mandatory rules. Cannot be modified by contract (articles of association). Usually
aimed at protection of weaker parties (for example creditors)
2. Default rules. Applicable in case Articles of Association or another contract does not
state otherwise:
o Article 2: 195 (1) DCC: Unless the articles of association provide otherwise, a
valid transfer of shares requires that the shareholder who wants to dispose of
one or more of its shares, firstly offers those shares to his co-shareholders in
proportion to the number of shares that is held by each of them at the
moment that such offer is made …
o Examples of Hansmann and Kraakman: France, default rule is one-tier board
structure.
Board of directors
- Dual/two-tier board = supervisory board and management board
- One-tier board (2 types) = non-executive board and executive board
3
, Right of first refusal = a fairly common clause in some business contracts that essentially
gives a party the first crack at making an offer in a particular transaction
Five characteristics of corporations
Basic legal characteristics
1. Legal personality
2. Limited liability
3. Transferability of shares
4. Delegated management under a board structure
5. Investor ownership
1) Legal personality
- Serve as a contracting party.
- A company is treated as if it is a legal person.
- Shareholders = owners of the shares, not the assets
- Entity shielding = liquidation protection and the priority rule
o Liquidation protection = capital of the company is within the shield and
therefore protected. Shareholders cannot claim the capital.
o Priority rule = creditors cannot claim their money but do have priority
- Perpetual life, but artificial creature of the law
- Hence, the corporate form is a set of features that enable a company to have an
autonomous life independent of its investors: separate patrimony (demarcation of a
pool of assets)
2) Limited liability
- Shareholders are only liable up to their committed investments owner shielding.
- Owner shielding = if the company cannot pay the debts to its creditors, then
creditors cannot get to the assets via the shareholders.
- Limited liability is a right that belongs to the shareholders rather than the company
itself.
- Advantages of limited liability:
1. Entrepreneurship
2. Investment (shares)
3. Portfolio diversification
Purpose of corporate law
1. Structure based on 5 features.
2. Controlling conflicts of interests (agency problems)
Asset partitioning
4
